Funds Rotating Into Leveraged Loans Too

By Michael Aneiro

With market watchers on alert for a “great rotation” out of bonds (or cash) and into stocks, investors have also been rotating funds into leveraged loans as that market has heated up lately. Here’s Steve Miller of Standard & Poor’s Leveraged Commentary & Data today:

A less heralded trend is the silent shift within the credit market to loans from fixed-income categories such as high-yield and high-grade bonds.

The numbers are unequivocal. As of Feb. 4, retail investors have put $2.76 billion of fresh capital to work in loan funds in 2013, according to EPFR, versus $1.81 billion into high-grade funds and $1.29 billion into high-yield funds (these data all refer to daily-reporting funds). This trend accelerated during the first two reporting days of February, as loan funds gained $477.1 million of new subscriptions while investors withdrew $69.8 million from high-grade funds and $395.1 million from high-yield funds.

Though spreads have constricted across all credit risk assets in recent months, rising rates have made loans more attractive for obvious reasons.

Recent inflow amounts into leveraged loans are magnified because that market remains much smaller than corporate bond markets.